Traders fear dollar outlook is bleak

TRADING in Asian markets was in suspended animation today as investors awaited the outcome of today's Federal Open Market Committee meeting, and found no direction from Wall Street overnight.

The US interest rate conundrum and a potential lose/lose outcome for the US dollar dominated sentiment.

Some worried that a cut in the rate would see money flowing out of the US while others fretted that a no-change would threaten the US economy with a move back into recession, which would also damage the dollar.

As the currency had its biggest fall in more than a month on foreign exchange markets, down from 120.16 to 118.83 yen, exporters' stocks in Tokyo slid, and pulled the Nikkei 225 Average down 59.21 points to 9688.61.

Although trading in Japan was reduced to a trickle as many investors were taking their midsummer holiday, shares in carmaker Toyota and consumer electronics group Canon led the falls with losses of more than 1.5% on fears that renewed strength in the yen would hit their export earnings.

An overnight hammering of retail stock in New York as investors began to doubt the resilience of the US consumer also added to concerns around Asia. Sony Corporation shares edged lower as analysts began to factor in the planned November launch by Microsoft of an online platform for its Xbox video game, potentially pinching sales of its Japanese rival's PlayStation 2.

Any buying on hopes that another round of interest rate cuts would kick-start demand for local residential property was likely to be misguided, according to analysts. Although leading developers such as Sun Hung Kai gained up to 1.5%, the outlook for the sector remains grim as Hong Kong's record unemployment and continued deflation deters buyers. As more apartment blocks come on to the market, traders now fear a damaging price war will break out, slicing into already wafer-thin margins.

Stocks in South Korea moved up after a drop in the local index of consumer confidence to a five-month low on worries about the impact of a fall in US spending on the local economy. The Kospi index added 13.24 to 708.63, led by Samsung Electronics, which was boosted by plans for a share buyback. Slack trading in Taiwan electronics counters saw the Weighted Average dip 34.37 points to 4817.70.

Resources stocks in Australia were hit by a 43% fall in half-year net profits of the WMC mining giant, which sent the group's shares down almost 2%. BHP Billiton lost a similar amount, and the All Ordinaries index fell 6.20 to 3058.30. Ahead of fourth-quarter profits tomorrow, shares of News Corp edged up slightly on hopes that core activities are improving, even if big writedowns disguise any gains.

Singapore shares continued to rise on signs of continuing strong economic growth, and the Straits Times index jumped 42.59 points to 1529.03 as investors ignored the mixed signals from Wall Street.

The Kuala Lumpur Composite index was up 5.26 points to 729.29 but Thailand's SET index lost 0.60 to 366.47 ahead of half-year earnings from major companies. Jakarta's Composite index ended the day 2.45 points ahead at 450.97.

• Prices and indices in this section are from various sources and calculated at different times and may not always match those listed elsewhere on the site.